2016 Financial Services M&A Predictions

What can we expect in 2016?

This year’s Financial Services M&A Predictions report explores the key drivers of M&A activity going forward, specifically, market disruption and technology; consolidation and growth; and regulatory change. Looking at recent M&A activity, the report predicts how these trends will impact M&A across the Banking, Insurance and Investment Management sectors in 2016.

Key predictions

• Challenger banks have outperformed the incumbents on a return on tangible equity basis by 13.5 percentage points but face increasing disadvantages in terms of capital and funding costs as they try to grow out of the smaller niche sectors in which they operate in to more mainstream markets. This makes the Challengers clear targets either for self-consolidation or for acquisition by larger banks.

• Due to banking regulatory pressures as a result of the phasing in of Basel III and the introduction of IFRS 9 the €2.2 trillion of non-core assets and €800 billion of non-performing loans are likely to be a driver of European M&A activity as banks try to release and re-deploy their tied up capital.

• For Investment Management Funds, the maxim that bigger is better isn’t strictly true as AUM was negatively correlated with return on equity in 2014. Future growth expectations, rather than simply scale, were positively correlated with return on equity. Therefore firms should focus on a growth strategy, including selective M&A targets, and not seek scale for scale’s sake only.

• Digital disruption will force Insurance companies to invest heavily in research and digital capabilities, either in-house or via acquisition, in order to keep up with developments such as the internet of things, peer to peer insurance and the sharing economy in this increasingly disrupted market.

• The implementation of Solvency II from 1 January 2016 is expected to drive M&A amongst Insurance companies, particularly in mainland Europe where capital requirements have been historically less onerous than in the UK.

2016 Financial Services M&A Predictions Seminar

20 January 2016, 8.30am – 10.30am

Join the Deloitte Financial Services M&A team and gain deeper insight into the 2016 predictions. The following topics will be covered:

• Disruption in the banking sector – Deloitte’s view on alternative lending models
• Gaining the benefits of consolidation – overview of how best to achieve synergies via M&A
• Solvency II for General Insurers – how will the new SII regime drive M&A

Registration begins at 8.30am for a 9.00am start. Breakfast is provided. For more information, please register your interest at vbarnard@deloitte.co.uk.